Bitcoin faces critical test as on-chain data reveals market exhaustion
Bitcoin’s (BTC) on-chain data reveals structural concerns about the sustainability of the current rally, and defending the $111,000 zone is fundamental to avoid further downside.
As Glassnode reported on Sept. 25, the retreat from near $117,000 following the Federal Reserve’s rate decision reflects a textbook “buy the rumour, sell the news” pattern.
The current drawdown from Bitcoin’s all-time high of $124,000 to $111,012 represents just a 10.5% decline, modest compared to the cycle’s previous 28% correction or the 60% drops seen in earlier bull markets.
However, the report noted that this surface-level stability masks market exhaustion that warrants careful attention.
On-chain metrics paint a concerning picture of capital flow dynamics. This cycle has absorbed $678 billion in net inflows through realized cap growth, nearly 1.8 times larger than the previous cycle.
Long-term holders have distributed 3.4 million BTC in profits, already exceeding previous cycles and highlighting the magnitude of selling pressure from seasoned investors. The market structure reveals a fragile balance between institutional demand and the distribution of long-term holders.
US-traded Bitcoin spot ETF inflows, which previously absorbed heavy selling, collapsed from 2,600 BTC per day to nearly zero around the FOMC meeting.
Meanwhile, the long-term holder distribution surged to 122,000 BTC per month, creating an imbalance that set the stage for weakness.
Derivatives markets amplified the correction through forced liquidations and deleveraging. Futures open interest fell sharply from $44.8 billion to $42.7 billion as Bitcoin broke below $113,000, with dense liquidation clusters between $114,000 and $112,000 driving aggressive selling.
While this deleveraging reset cleared excess leverage, it also revealed the market’s vulnerability to liquidity-driven swings.
Options markets reflect heightened downside concerns, with put/call skew spiking from 1.5% to 17% following the correction.
Total options open interest near all-time highs creates a gamma overhang that amplifies volatility, particularly to the downside, where dealers are positioned short gamma.
As Bitcoin is now trading at $109,466, the $111,800 level represented the short-term holder cost basis and served as temporary support during recent selling.
This technical foundation becomes crucial as the market navigates between institutional accumulation and long-term profit-taking by holders.
Bitcoin’s ability to maintain the threshold will determine whether this correction represents healthy consolidation or marks the beginning of a deeper cooling trend.
Without renewed institutional demand to offset continued long-term holder distribution, the risk of more significant price declines increases substantially.
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